1. U.S. equity markets stumbled in February. Non-U.S. developed equity markets continued to outperform, generating a year-to-date return near 8%.
2. All that glitters is not gold, but gold’s performance has shined the brightest.
3. The inflation rate appears to have plateaued around 1% above its pre-pandemic levels.
The Atlanta Federal Reserve Bank’s measure of “sticky price” inflation (think rent, insurance and medical care) has dipped but is still running at a 3.5% annual rate. We anticipate a further moderation in owners’ equivalent rent.
4. While the moderation in owners’ equivalent rent will put downward pressure on the inflation rate, tariffs are likely to exert upward pressure on the inflation rate. The combination of a slowdown in government spending due to DOGE initiatives and the impact of tariffs, including disrupting business planning, will put downward pressure on economic growth. Continued market volatility and profit margin pressures are likely the only certainties.
As of March 20, 2025, S&P 500 companies have reported year-over-year earnings growth of 18.3%, driven by strong margin expansion and revenues increasing 5.4%. According to FactSet, analysts are forecasting 11% earnings growth for calendar year 2025.
The challenge for companies will be maintaining earnings growth, when profit margins are near all-time highs as a percentage of GDP and revenues and profit margins face the headwinds of tariffs, inflation, and reduced government spending.
